Ratings agency Standard & Poor's today revised its outlook on US sovereign debt to 'negative' from 'stable'.
This means the agency is more likely to downgrade its rating of US debt in the next two years. The news sent world stock markets down sharply.
'Because the US has, relative to its 'AAA' peers, what we consider to be very large budget deficits and rising government indebtedness and the path to addressing these is not clear to us, we have revised our outlook on the long-term rating to negative from stable,' S&P said in a statement.
But S&P said the US had until 2013 to come up with a credible plan for addressing its financial problems.
'We believe there is a material risk that US policymakers might not reach an agreement on how to address medium- and long-term budgetary challenges by 2013,' it said.
The agency said the move signals there is at least a one-in-three likelihood that it could lower its long-term rating on the US within two years.
'If an agreement is not reached and meaningful implementation is not begun by then, this would in our view render the US fiscal profile meaningfully weaker than that of peer 'AAA' sovereigns,' S&P warned.
The US is prepared to take the steps needed to reduce its ballooning budget deficits and both political parties agree now is the time to act, a top Obama administration official said after move.
'We believe S&P's negative outlook underestimates the ability of America's leaders to come together to address the difficult fiscal challenges facing the nation,' said Mary Miller, Assistant Treasury Secretary for Financial Markets.
